Creating a long-term savings plan is the first step toward building savings that can act as a buffer during financial emergencies, fund a rewarding retirement or achieve major financial goals such as purchasing a home or putting children through college. The best savings plans depend on individual situations; there’s no predetermined savings formula that will magically ensure future wealth. Instead, follow time-tested steps for developing and sticking to long-term savings plans that fit personal goals for you and your family.
It’s hard to get somewhere without a clear starting point. The best long-term savings plan begins by taking stock of your current financial situation to identify income streams, spending habits, debt volume and other financial factors. Collect and document all sources of income, including salary, rent, dividends and other assets. Then list all financial obligations, including mortgage payments, credit cards, student loans and other debt sources. Locate and note interest rates and repayment terms on outstanding debt, identifying the highest interest rate and resolving to pay that debt off first. Include family budget allocations for gas, food, utilities, recreation and other expenses.
The best long-term savings plans include clearly defined goals. Rather than stating, “I want to buy a house,” it’s better to include specific targets such as, “I want to save $20,000 in the next four years for a down payment on a $240,000 home.” Don’t state, “I want to help pay for my child’s college education.” Be specific by saying, “I’d like to save $100 per month for the next 15 years to help pay for my child’s college tuition.”
Your initial financial goals may slowly evolve over time to accommodate changing personal preferences, increased or decreased personal income, or the general state of the economy, but working from a predetermined goal helps get things started. If you’re married, have a long-term partner or have children, share these long-term goals with family members so that they can be supportive when it comes to family budget cuts or occasionally deferring short-term goals.
When it comes to long-term savings, choosing the right savings tools helps decrease risk and encourages flexibility. Visit local banks or shop around online to find financial institutions with savings account terms that offer low fees, higher interest rates or other benefits that encourage savings. Meet with a financial adviser to develop a plan for investing savings in retirement funds, CDs, stock market portfolios and college savings plans. Never feel rushed when choosing these crucial savings tools; collect relevant information and then take time to review the pros and cons of available savings tools. For example, a retirement fund may offer higher returns on savings but offer heavy penalties for early withdrawal. Sinking all savings into a retirement fund might make money difficult or impossible to access in the event of a family financial emergency, so you’ll want to also sock money away in more accessible savings instruments, such as savings accounts.
Transforming savings into a game can be profitable and rewarding. Learn tips for saving more money by setting personal rules such as discussing purchases over $400 (or another predetermined amount) with your partner, or saving all coins in an oversize jar to your savings account each year. You can also decide to make matching savings contributions for every nonessential purchase; for example, tucking $5 into your savings account each time you indulge in a $5 blended cappuccino.